Tax collection rose 9.3 percent year-on-year to 2.3 trillion pesos at the end of September, signaling the economic recovery and paving the way for fiscal consolidation to reduce the growing budget deficit and slow the economy. accumulation of debt caused by increased public spending to combat the protracted pandemic.
Finance Secretary Carlos Dominguez III said on Friday that the Bureau of Internal Revenue (BIR) tax levies from January to September increased 6.9% year-on-year to 1.5 trillion pesos.
The Customs Office’s (BOC) collections of import duties and other taxes in the first nine months increased 18% year-on-year to 469.8 billion pesos, Dominguez noted.
Dominguez told a forum hosted by the United Nations Economic and Social Commission for Asia and the Pacific (Unescap) that the Philippine government was “confident that the high level of debt and deficit is a temporary condition and that we can quickly return to fiscal consolidation.
Last month, the Development Budget Coordinating Committee (DBCC) said the government would start reducing the budget deficit to pre-pandemic levels next year, alongside expectations of faster economic growth and d ‘increased revenue.
From the largest budget deficit on record this year of 1.86 trillion pesos (equivalent to 9.3 percent of gross domestic product), the gap will gradually narrow to 1.67 trillion pesos (7.5 percent of GDP) next year, 1.4 trillion pesos (5.9 percent of GDP) in 2023 and 1.29 trillion pesos (4.9 percent of GDP) in 2024, according to DBCC projections.
Last year, the national government swelled its budget deficit to 1.37 trillion pesos or 7.6 percent of GDP due to higher spending requirements for the COVID-19 response, while collecting revenue weakened amid the economic crisis induced by the pandemic.
“Due to all the unforeseen expenses for the COVID-19 response and our declining income due to our lockdowns, we had to deal with a temporary but controlled expansion in our deficit-to-GDP ratio last year. But we had defined a clear strategy to finance our deficit: we favored domestic borrowing, followed by official development assistance (ODA) and international capital markets. We have determined that this plan was the most prudent approach to ensure the sustainability of our debt service, ”said Dominguez.
Dominguez had said the Department of Finance (DOF) was already working on a “game plan” of tax strategies – possibly including new taxes or higher taxes – that the next administration could implement to increase revenue and bring back the budget deficit at around 3% of GDP.
Slowing incomes amid the pandemic also forced the government to borrow more through concessional loans from multilateral banks and bilateral development partners, as well as bond issues in commercial debt markets. national and offshore.
This pushed up the Philippines’ debt-to-GDP ratio, which reflected an economy’s ability to repay its bonds, to 54.6% in 2020, from a record high of 39.6% in 2019.
As the stock of debt grew faster than the economy in the first half of the year, the debt-to-GDP ratio stood at 60.4% in June, slightly above the 60% threshold than the Debt watchers considered it a manageable level among emerging markets.
The debt-to-GDP ratio was set to end in 2021 at a 16-year high of 59.1 percent, as outstanding national government bonds will hit a record 11.730 billion pesos by the end of the year.
Dominguez said the Philippines remains cautious about spending limited resources because the government “has taken into account what the country can spend quickly and efficiently.”
“Instead of spending money on the crisis, the government has adopted the more cautious strategy of expanding lending to businesses affected by the pandemic by adding more capital to our government banks. Instead of spending money on government programs that tend to be less effective, we are leaving money in the hands of the private sector to revitalize their businesses through a sharp reduction in corporate tax rates, ”said Dominguez, referring to the Business Takeover and Tax Incentives for Enterprises (CREATE) Act, which reduced income tax rates applied to large enterprises as well as micro, small and medium enterprises (MSMEs).
The DBCC had estimated that the CREATE law would eliminate 118.8 billion pesos from tax revenue next year; 115 billion pesos in 2023; and 106.5 billion pesos in 2024. The divested revenues of CREATE this year were estimated at 138.2 billion pesos.
Subscribe to INQUIRER PLUS to access The Philippine Daily Inquirer and over 70 titles, share up to 5 gadgets, listen to the news, download from 4 a.m. and share articles on social media. Call 896 6000.